On May 1, 2001, Ustar Purchased a Put Option to Sell

question 51

Multiple Choice

On May 1, 2001, Ustar purchased a put option to sell £50,000 on April 30, 2002 at a strike price equal to $2, which was the spot rate on May 1, 2001. Ustar paid a premium of $0.01 per pound. How should the option be recorded on May 1, 2001?

• A) Debit Foreign Currency Option for $100,500.
• B) Credit Foreign Currency Option for $100,500.
• C) Debit Foreign Currency Option for $500.
• D) Debit Hedge Expense for $500.

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